Epangelo on the Springboard

 

Windhoek – Namibia state-owned Epangelo Mining Company has managed to court international investors to establish joint exploration projects for almost half of its 39 exclusive prospecting licences (EPLs) in a range of minerals, laying the springboard for growth, nearly five years after it was established.

Epangelo benefitted from the state’s largesse when the government granted it exclusive access to strategic minerals such as, diamonds, uranium, copper, gold, and zinc and rare earth metals to give the junior miner leverage in a sector dominated by multinationals.

With a budget from the national fiscus only limited to financing its internal operations, Epangelo is using the EPLs to court international investors for joint exploration activities, and thereafter establishment of standalone mining entities.

Epangelo has already established joint venture exploration projects with international investors, among them Vedanta Resources’ Skorpion zinc mine and refinery, for almost half of the 39 EPLs it currently owns.

Eliphas Hawala, the MD of Epangelo Mining told The Southern Times that the company will negotiate equity positions in mining projects with international investors ‘on merit and nobody will be given a share in Epangelo’, the holding company.

“We have basically secured joint venture partners for exploration on half of the EPLs that we have. 

Half of our EPLs are already under joint venture agreements. In all those, we have gone past the memorandum of understanding stage and some of them (investors) have paid commitment fees,” Hawala said in interview.

“For each one of licensed area is a potential standalone company and the approach we are taking is that if an investor meets certain milestones, we will also be reducing our shareholding to agreed levels. But this is dependent on the partner meeting the milestones from feasibility studies to commercial production,” Hawala added.

Still a mining upstart by any standards, Epangelo recently negotiated for a 10 percent stake in Husab uranium mine, which contains the world’s fourth largest uranium deposit and is largely owned by China Guangdong Nuclear Power Company.

Epangelo also owns a 10 percent stake in Combats copper mine, which holds mining licences and five EPLS in the Otavi area, an area widely believed to hold huge reserves of copper.

With exploration plans currently in the pipeline, Hawala believes the company has laid a foundation for growth. He, however, cautions that mining projects have a long duration before a return on investment is realised.

Hawala also says that Epangelo should not chew what it will not be able to swallow and that big projects or acquisitions might be too risky for a start-up operation.

“Logically, our approach is we want to crawl before we start walking and if we chew too much we might not be able to swallow it,” Hawala said.

Hawala brushed aside concerns that the state-owned miner does not have sufficient capital to finance acquisitions.

Epangelo has since its establishment leaned heavily on the national treasury to finance its day-to-day operations.

While Hawala argues that the company does not have cash constraints, the reliance on the state for funding could be reason why they operate with a skeleton staff.

He explains that Epangelo will expand its human capital as its mining projects get into commercial production, meaning that the company’s operations will self-finance as it grows its balance sheet.

Hawala said that the company would likely finance acquisitions through debt finance, in instances where it is not leveraging ownership of its minerals to establish joint ventures.

“You don’t use your own money to finance acquisitions and that is the most common practice. What you need to secure financing is ability to repay and in our case that can be determined by the resource on the ground or the value of the asset being acquired,” Hawala said.

 

Navachab Gold

 

This strategy will direct Epangelo as it seeks accommodation from investors who will emerge as the winners of AngloGold Ashanti’s Navachab gold mine, which is on sale.

A Namibian daily reported a week ago that Johannesburg and Canadian-listed Pan African Resources and Giyani, respectively, are bidding US$130 million for Navachab, in a deal which they propose to rope in Epangelo with a 5 percent stake.

Due to lack of capital, Epangelo was not qualified to bid but the company would have to negotiate with a winning bidder to secure a minority stake, Hawala said.

“If an opportunity arises where we can join any consortium, we will have to investigate the costs and see if they are willing to accommodate us on agreeable terms. Epangelo is keen to approach any potential winner of the Navachab bid for a potential stake,” Hawala said.

He added that the company will also look ‘at the cost of capital’ when considering securing a stake in Navachab and as a ‘secondary interested party we have to consider if we can afford the terms and whether it’s worth it,” Hawala said.

Navachab, situated about 170 kilometres north-west of Windhoek, is an open pit mine, which has been in operation since 1989 and has a 120 000 metric tons a month processing plant. Navachab produced 74 000 ounces of gold in 2012.

The joint Pan African Resources and Giyani bid has also proposed to set aside 15 percent shareholding to communities surrounding the mine as well as reserve the 5 percent stake for Epangelo.

November 2013
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